Bankruptcy FAQs

Protecting funds in a bank account is often a top priority of those filing for Chapter 7 or 13 bankruptcy. The effect that bankruptcy will have on any money deposited into your personal bank accounts is dependent upon if the money has been protected by a bankruptcy exemption and the amount of pre-bankruptcy planning you were able to do to protect money that is not exempt in the bankruptcy process.

Pre-bankruptcy planning is common and legal, it is sometimes referred to as asset conversion. Though it may sound like it is something sneaky asset conversion is a method used to re-organize any assets and keep as much property in your hands and out of the reach of creditors as possible. The way to do this with bank account funds would be to invest any amount over the exemption amount in exempt assets.

While it is perfectly legal to convert non-exempt property into exempt property it needs to be done in “good faith” and the law does not allow someone filing for bankruptcy to hinder,delay, or defraud creditors. You need to be extremely careful when converting bank account funds to exempt property because determining the good faith of your asset conversion is tricky and while courts recognize asset conversion as legal a small amount of courts recognize pre-bankruptcy planning as ethical practice.

Forms of allowable pre-bankruptcy planning that do not send up red flags in court include: paying down your mortgage in states with large homestead exemption, making an annual contribution to your retirement account, IRA or other exempt pension plan as defined by your state exemption list, purchase exempt personal property like cars furniture and clothes according to state exemption amounts, purchase of life insurance, pay down nondischargable debts like taxes, student loans, alimony and child support.

If a court finds that you have attempted to defraud creditors with asset conversion it could impose civil or criminal penalties. Courts will look at factors such as misrepresenting asset values, investments made were worth less than money spent, family or close friends were involved in property purchases, a radical change in lifestyle.

There is another thing you can do to protect finds in your bank account. If you owe the bank or credit union you have an account with money at the time you file for bankruptcy, for example if you have taken out a mortgage or car loan with them,they have the right to “set off” any debts owed to them with any bank account funds you have in their bank. They have the right to do this at anytime regardless of a bankruptcy claim. Banks rarely use “set off” rights but it is still a good decision to take every precaution and think of every likely scenario before filing for bankruptcy.

Bankruptcy laws are very different in every area and it is impossible to know the best way to protect accounts and what measures you should take without an experienced lawyer. If you are considering filing for bankruptcy please contact the team at Advantage Legal Group.

Let’s look at these scary aspects, in broad daylight and see if there is anything worthy of tremble and fear.

Loss of control

Filing bankruptcy passes nominal ownership of everything you have, outside of some kinds of retirement assets, to the Chapter 7 trustee for the benefit of your creditors. On the surface that does sound kind of scary. However, nearly 98% of Chapter 7 cases are no asset cases. That means that the debtor loses nothing to the bankruptcy trustee on behalf of creditors.

This is because their possessions have little net value or an exemption protects the asset for the debtor’s benefit.

In some situations, it may be hard to tell what assets are worth or whether they are saleable. The uncertainty makes it unpredictable to pass control to a trustee. That’s a case for a Chapter 13 because the debtor keeps everything he wants to keep, and pays some fraction of their value to creditors over time by cash. The debtor proposes the plan, suggests the values, and can get out of bankruptcy if the case should take an unexpected turn they weren’t hoping for.

Future credit in doubt

The commercials that try to sell you some for-profit solution to your debt problem scare you by saying that you’ll never get credit again if you wipe out your debts in bankruptcy or they tell you you’ll have to wait a good ten years before you can get credit, but it’s nonsense.

Bankruptcy makes you almost instantly a better credit risk than you were before you filed. Does that sound crazy? The reason is because now there are fewer demands on your income.

Bankruptcy is more expensive right after filing, but all things being equal, the cost of borrowing goes down the farther out you get from bankruptcy.

The truth is the availability of credit and its cost depends on a lot of things and no one can predict them all.

However, this is a hard cold truth you should know…. loaded with debt, you probably couldn’t get more credit now even if you didn’t file for bankruptcy. SCARY!

Public exposure

Bankruptcy may make you feel as if you’re going to be drug out to the town square to be tarred, feathered and ridiculed, but this is simply not true.

Most of that view of bankruptcy is all in your mind. Bankruptcy cases are in the public record, and anyone who wants to find out can find out, BUT, how much time do you spend figuring out which of your neighbors and coworkers have filed bankruptcy? See? Nobody cares! And, anyway, you would also be surprised at how many people, famous and anonymous, have filed bankruptcy themselves. Studies show that job loss, divorce, and illness account for a large percentage of debts leading to bankruptcy. You are NOT the only one to ever travel this road and it doesn’t make you less of a person!

These absurd fears need to be knocked down a notch or two or three!

Not so scary

Bankruptcy is nothing to be afraid of but not fixing a problem that has a solution is!

Bankruptcy is all about helping an individual(s) resolve debt and learn better financial management. Getting a fresh start is not just about leaving the past behind but it also requires someone to protect the assets they still have. You can maximize the benefits of this by NOT borrowing, selling or getting rid of these assets before you file for bankruptcy.

All too often, bankruptcy attorneys meet clients who have taken desperate measures in order to stay afloat with mountains of debt. They operate under the belief that they will lose their assets after filing bankruptcy. However, the truth is, that it can be harder to recover from bankruptcy if you don’t have the basics, such as a home, car, retirement accounts, unemployment benefits, tools of your trade and so on.

Bankruptcy Protection and Your Assets

A lot of times bankruptcy will provide protection for your assets. Straight bankruptcy (Chapter 7 filing) will protect “exempt” assets which means people filing for this type of bankruptcy will be able to keep much of what they own. Assets that have a higher value than what is exempt by law can be kept by “an adjustment of debts” under Chapter 13 bankruptcy for items that are non exempt. To develop a plan to protect these assets, obtain an experienced attorney.

Bankruptcy Can’t Bring Back What Has Already Been Lost

Although bankruptcy can provide protection for what you currently own, it cannot bring back what you may have already lost before you filed for bankruptcy. Things that have been spent, sold or borrowed against to avoid financial disaster could have been saved if bankruptcy was filed beforehand.

Most people facing bankruptcy don’t realize the consequences of borrowing, selling and spending or that their assets may be protected under law. An experienced attorney can help place you in the perfect position for filing bankruptcy.

Is Bankruptcy Embarrassing?

Being an adult is rough. As an adolescent we would hesitate to do things, worried about what our peers would think, and often, being an adult is no different. Being an adult doesn’t mean you no longer have emotions or that you don’t worry about others judging you. However being an adult DOES mean that you need to go ahead and make the hard decisions that DO come with consequences, BUT do turn out better for you in the long run.

Bankruptcy has a weird stigma and connotation like people think their name will appear on some “website of shame” or something. The truth is, unless you’re a celebrity, you probably won’t hit any tabloids.

Most of bankruptcy is between you and your lawyer. As with any other attorney/client relationship, the attorney/client privilege of confidentiality applies.

When your case is filed with the bankruptcy court, your case will be sent to your creditors for obvious reason. Additionally, any family or friends that you owe money to will be notified as well since you are required to list ALL debts. Therefore, now your lawyer knows and the people you owe money. No one else. It is true that your filing of bankruptcy is public record but no one would ever know unless for some reason they purposely sought it out.

The only time you will be out in public discussing your bankruptcy is at your “Meeting of Creditors”. This meeting is a short meeting between you and your bankruptcy trustee. Creditors are welcome to attend however, they usually don’t. These meetings are generally held in a conference room and last about five minutes or so. So, rest assured that this is a short meeting with STRANGERS that you’ll probably never see again. So, once again unless you’re a celeb and get caught by TMZ, the process is relatively short and painless.

No one will know you filed for bankruptcy unless you tell them. Besides all this, if you’re facing serious financial problems and TRULY WANT to begin to do what RIGHT with your money, you shouldn’t feel any shame in creating a fresh start with a clean slate for yourself. Hold your chin up and begin on the path of financial responsibility. You got this.

See Also:

As of June 1st, 2014 the Bankruptcy Court will be increasing its fees for filing and general services. Periodically the filing fees in the U.S. federal and state courts do increase and that’s why we’re seeing this happen. If you are considering filing bankruptcy, now may be a good time to get going on filing that petition in order to avoid the fee increase. It may not be a huge increase, but it’s still an increase and if you’re at the point of considering bankruptcy you obviously have a desire to start being smart with every penny you’ve got!

There are several bankruptcy fees that will increase on June 1st under amendments to the Bankruptcy Court Miscellaneous Fee Schedule that were approved in March by the Judicial Conference of the United States.

Changes include:

– The adversary filing fee in bankruptcy proceedings will increase from $293 to $350, a $57 increase. This new fee is equivalent to civil filing fees in federal district courts.

-Currently, administrative fees are $46 in all cases. They will now the fee will be $75 for cases filed under Chapters 7, 12, and 13, and $550 for cases filed under Chapters 9, 11, and 15.

-Separate administrative fees have also been approved for when married couples divide a bankruptcy filing into two cases (see also: Can One Spouse File for Bankruptcy? ) This approval was done by the Judicial Conference due to the fact that divorce or separation often occurs while a case is being adjudicated.

To learn more about the bankruptcy process or the different types of bankruptcy, or anything bankruptcy related for that matter, check out our blog or these specific articles:

Are All Debts Forgiven in Bankruptcy?

Bankruptcy is a very useful thing that can help many people and give them a fresh start in their financial lives. Many debts can be discharged in bankruptcy. However, there are sometimes exceptions. Debts that are commonly discharged in bankruptcy include things such as:

-credit cards or unsecured loans

-car repos and deficiency balances

-SOME car accidents

-material supplier debts

-medical bills

-lawsuits and judgments

-evictions and unpaid rent

-unpaid utility bills

-foreclosure balances

There are exceptions, however, to the above standard discharges covered by going bankrupt. The following are four different examples of these exceptions:

Excessive credit card use immediately leading up to the bankruptcy. If you go on a major credit spree just before filing for bankruptcy, you may have troubles. The creditor may challenge your request claiming you never intended to pay for those items. If this happens your entire balance MAY NOT be discharged.

Being under the influence of drugs or alcohol when you cause an accident or maliciously or willfully causing an accident. Debts under these kinds of circumstances cannot be eliminated.

In the case of money owed to suppliers, if you STILL have material that the supplier can recover and resell, you have to return it. You don’t get to keep it, eliminate your debt and then resell the material for your own profit.

Committing fraud when you’re sued may prevent debts from judgments against you from being discharged.

The aforementioned debts are the most common types included in bankruptcy petitions. It should be noted that each case is unique and has its own set of circumstances. Therefore you should always consult an attorney concerning your particular debts as well as do your own personal research.